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Two Tales Tell Why We Need a Tax Cut

As the full Senate takes up President Bush’s modest tax cut, Americans should keep in mind the big picture: cutting taxes helps hold down the size of government. Two recent stories in the news –- one about an old federal institution and the other concerning a new economic powerhouse -– argue strongly for a big tax cut.

The Smithsonian Institution is a familiar Washington organization that includes, among other things, the National Zoo. In the last few weeks, the Smithsonian’s new leader, Lawrence M. Small, has tried to reform the hidebound organization.

Faced with declining revenues, Small decided to reorganize the Smithsonian by eliminating five divisions, including the National Zoo’s Conservation and Research Center in nearby Front Royal, Va. Small’s reorganization would phase out 200 jobs, or about 3 percent of the workforce. Small says that spending on science would remain the same overall.

What happened next reveals much about why it’s so hard to reduce government spending. Rep. Frank Wolf (R-Va.), whose congressional district includes Front Royal, did a quick review of the scientific literature on conservation and decided that “closing the center would be a mistake. The research done at the [Center] is on the cutting edge.” He then met the center’s staff and promised “strong resistance” to Small’s plans. The next day’s Washington Post quoted several defenders of the center who suggested that Small was some yahoo who didn’t really understand the important work of science.

A week later, Small faced open rebellion. Seventy scientists at the Smithsonian fired off a formal protest against the reorganization, making sure a copy went to the institution’s Board of Regents, Sen. John Warner (R-Va.) and Rep. Wolf. Confident of their wisdom about all matters, including budgets, the 70 protesters referred to themselves as “one of the world’s largest groups of creative thinkers.”

The Washington Post provided a sympathetic editorial and more stories with supportive quotes from scientists, interest group officials, and a zoo director. Sen. Warner then fired off a letter to Small saying, “There is growing sentiment … that closure of this facility is not a prudent course of action.”

Personal attacks followed. A Smithsonian naturalist wrote Rep. Wolf that Small had created a “dictatorship” and was “surely the most reviled and detested administrator in the Institution’s history.” The Washington Post ran an unflattering account of his employment at Citibank. Predictably, on May 7 Small abandoned his effort to close the center at Front Royal.

In Washington, the enemies of change— especially change that reduces the income and power of entrenched bureaucrats—are powerful, as Small has discovered. The Smithsonian mess shows government protects its status quo. The idea that government can respond to the desires of citizens (as opposed to the interests of bureaucrats) is a joke.

In contrast, consider the recent history of Cisco Systems Inc., the largest maker of equipment that connects people and businesses to the Internet. For years Cisco has been a favorite of Wall Street investors. Now, as the economy has slowed, Cisco is looking at hard times: Revenues have dropped 30 percent over the last three months. Cisco’s executives have responded by firing 8,500 employees, almost 20 percent of its workforce. The company will take a restructuring charge of $800 million to $1.2 billion to deal with layoffs, facilities that are no longer needed, and other assets that have lost value.

Cisco’s changes are no doubt unpleasant for those who lost their jobs. We can have sympathy for them and still appreciate the way markets rapidly respond to changes in the marketplace. Markets force companies, even powerful entrenched leaders like Cisco, to adapt to change. Government, by contrast, resists change to serve the self-interest of bureaucrats. Can anyone imagine a situation short of nuclear war in which the Smithsonian Institution would lay off 20 percent of its employees?

If Congress passes a small tax cut, Americans will spend more on the self- serving status quo at places like the Smithsonian. If Congress passes a large tax cut, Americans will spend more of their own money in markets responsive to their wants and needs. Which path is better for the nation as a whole? The Smithsonian mess suggests an obvious answer.